<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   -----------

                                    FORM 10-Q

              /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

              / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

       For the quarter ended March 31, 1999 Commission file number 0-20526

                                   -----------

                             ARCADIA FINANCIAL LTD.
             (Exact name of registrant as specified in its charter)

           MINNESOTA                                    41-1664848
   (State or other jurisdiction                (I.R.S. Employer Identification
Of incorporation or organization)                        Number)

            7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code (612) 942-9880

                                   -----------


     Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was require to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   /X/         No     / /

     The number of shares of the Common Stock of the registrant outstanding as
of May 7, 1999 was 39,204,110.


<PAGE>


<TABLE>
<CAPTION>
                                 FORM 10-Q INDEX

                                                                                                                  PAGE
<S>           <C>                                                                                                   <C>
    PART I    FINANCIAL INFORMATION

    Item 1.   Consolidated Financial Statements                                                                      3
    Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
                 Operations                                                                                         10
    Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                            20

    PART II   OTHER INFORMATION

    Item 1.   Legal Proceedings                                                                                     21
    Item 2.   Changes in Securities and Use of Proceeds                                                             21
    Item 3.   Defaults Upon Senior Securities                                                                       21
    Item 4.   Submission of Matters to a Vote of Security Holders                                                   21
    Item 5.   Other Information                                                                                     21
    Item 6.   Exhibits and Reports on Form 8-K                                                                      21

    SIGNATURES                                                                                                      24

    EXHIBIT INDEX                                                                                                   25
</TABLE>


     The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are of
a normal recurring nature) have been included for a fair presentation of the
results of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.

                         SAFE HARBOR STATEMENT UNDER THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Certain statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "estimate," "should," or "continue" or the negative thereof or
other variations thereon or comparable terminology. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from those
results presently anticipated or projected. Such factors include, among other
things, the following: increased delinquency and loan loss rates; accounting and
regulatory changes; interest rate fluctuations; difficulties or delays in the
securitization of automobile loans; availability of adequate short- and
long-term financing; general economic and business conditions; and other matters
set forth under the caption "Cautionary Statements" in exhibit 99.1 to the
Company's 1998 Annual Report on Form 10-K filed March 24, 1999.


<PAGE>


                             ARCADIA FINANCIAL LTD.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                          (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE  AND PER SHARE AMOUNTS)             MARCH 31,  1999           DECEMBER 31, 1998
                                                                      -------------------      ------------------------

                                                     ASSETS

<S>                                                                             <C>                     <C>     
Cash and cash equivalents                                                       $ 12,116                $ 10,827
Due from securitization trust                                                    148,819                  62,081
Auto loans held for sale                                                          43,731                  17,899
Finance income receivable                                                        607,996                 587,946
Furniture, fixtures and equipment                                                 16,239                  17,511
Other assets                                                                      31,379                  31,419
                                                                            -------------          --------------
     Total assets                                                              $ 860,280               $ 727,683
                                                                            -------------          --------------
                                                                            -------------          --------------

                                      LIABILITIES AND SHAREHOLDERS' EQUITY

Amounts due under warehouse facilities                                         $ 129,482           $           -
Senior notes                                                                     366,911                 366,657
Subordinated notes                                                                59,764                  51,898
Capital lease obligations                                                          3,167                   3,384
Accounts payable and accrued liabilities                                          25,330                  36,935
                                                                            -------------          --------------
     Total liabilities                                                           584,654                 458,874

Commitments and contingencies

Shareholders' equity:

Capital stock, $.01 par value, 100,000,000 shares authorized:
   Common stock 39,204,110 and 39,156,888 shares issued
    and outstanding, respectively                                                    392                     392
Additional paid-in capital                                                       324,995                 324,565
Accumulated other comprehensive income                                            17,062                  18,550
Retained earnings                                                               (66,823)                (74,698)
                                                                            -------------          --------------
     Total shareholders' equity                                                  275,626                 268,809
                                                                            -------------          --------------
     Total liabilities and shareholders' equity                                $ 860,280               $ 727,683
                                                                            -------------          --------------
                                                                            -------------          --------------
</TABLE>


            See notes to unaudited consolidated financial statements.


<PAGE>


                             ARCADIA FINANCIAL LTD.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                         THREE MONTHS ENDED
                                                                                             MARCH 31,
                                                                             -------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                                  1999                       1998
                                                                             ----------------           ----------------
<S>                                                                                  <C>                       <C>     
REVENUES:
  Net interest margin                                                                $21,289                   $ 19,947
  Gain on sale of loans                                                               21,995                     27,000
  Servicing fee income                                                                21,815                     19,666
                                                                             ----------------           ----------------
      Total revenues                                                                  65,099                     66,613

EXPENSES:

  Salaries and benefits                                                               18,479                     17,685
  General and administrative and other operating expenses                             25,279                     28,149
                                                                             ----------------           ----------------
      Total operating expenses                                                        43,758                     45,834
  Long-term debt and other interest expense                                           13,466                     12,785
                                                                             ----------------           ----------------
      Total expenses                                                                  57,224                     58,619
                                                                             ----------------           ----------------

  Operating income before income taxes                                                 7,875                      7,994
  Income tax expense                                                                       -                      3,038
                                                                             ----------------           ----------------
      Net income                                                                       7,875                      4,956

OTHER COMPREHENSIVE INCOME (LOSS):

  Net unrealized gain (loss) on finance income receivable                            (1,488)                      2,024
  Income tax expense                                                                      -                         771
                                                                             ----------------           ----------------
                                                                                     (1,488)                      1,253
                                                                             ----------------           ----------------

  COMPREHENSIVE INCOME (LOSS)                                                        $ 6,387                    $ 6,209
                                                                             ----------------           ----------------
                                                                             ----------------           ----------------
EARNINGS PER SHARE:

      Basic                                                                          $  0.20                     $ 0.13
      Diluted                                                                        $  0.20                     $ 0.13

Weighted average shares:

      Basic                                                                       39,204,110                 38,988,885
      Diluted                                                                     39,279,849                 39,360,968
</TABLE>


            See notes to unaudited consolidated financial statements.


<PAGE>


                             ARCADIA FINANCIAL LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                    THREE MONTHS ENDED
                                                                                         MARCH 31,

                                                                            ------------------------------------
(DOLLARS IN THOUSANDS)                                                          1999                   1998
                                                                            --------------         -------------
<S>                                                                               <C>                   <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                        $ 7,875               $ 4,956
Adjustments to reconcile net income to net cash used in
  operating activities:
  Depreciation and amortization                                                     2,018                 2,938
  (Increase) decrease in assets:
      Automobile loans held for sale:
          Purchases of automobile loans                                          (583,671)             (585,583)
          Sales of automobile loans                                               550,000               588,194
          Repayments of automobile loans                                            7,839                25,939
      Finance income receivable                                                   (21,538)              (51,630)
      Due from securitization trusts                                              (86,738)              (15,016)
      Prepaid expenses and other assets                                               156                   500
  Increase (decrease) in liabilities:
      Deferred income taxes                                                             -                 3,807
      Accounts payable and accrued liabilities                                    (11,605)               (5,865)
                                                                            --------------         -------------

          Total cash used in operating activities                                (135,664)              (31,760)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of furniture, fixtures, and equipment                           1,078                     -
Purchase of furniture, fixtures and equipment                                      (1,713)               (1,431)
Collections on subordinated certificates                                              236                   274
                                                                            --------------         -------------

          Total cash used in investing activities                                    (399)               (1,157)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of Common Stock                                            221                   304
Proceeds from borrowings under warehouse facilities                               542,284               716,229
Repayment of borrowings under warehouse facilities                               (412,802)             (693,190)
Unsecured subordinated notes, net                                                   7,866                  (927)
Reduction of capital lease obligations                                               (217)                 (386)
                                                                            --------------         -------------

          Total cash provided by financing activities                             137,352                22,030
                                                                            --------------         -------------

Net increase (decrease) in cash and cash equivalents                                1,289               (10,887)
Cash and cash equivalents at beginning of period                                   10,827                17,274
                                                                            --------------         -------------

Cash and cash equivalents at end of period                                        $12,116               $ 6,387
                                                                            --------------         -------------
                                                                            --------------         -------------
Supplemental disclosures of cash flow information: 
    Cash paid for:
    Interest                                                                      $25,659               $24,638
</TABLE>


            See notes to unaudited consolidated financial statements.


<PAGE>


                             ARCADIA FINANCIAL LTD.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                         ACCUMULATED
                                                  NUMBER OF     COMMON     ADDITIONAL       OTHER         RETAINED
                                                   COMMON        PAR        PAID IN     COMPREHENSIVE     EARNINGS
                                                   SHARES       VALUE       CAPITAL         INCOME        (DEFICIT)       TOTAL
                                                 ----------    -------     ----------   -------------    -----------    ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                              <C>           <C>         <C>          <C>              <C>            <C>      
BALANCE, DECEMBER 31, 1998                       39,156,888     $  392      $ 324,565     $   18,550     $  (74,698)    $  268,809
Issuance of Common Stock:
    Benefit plans                                    47,222         --            221             --             --            221
 
Amortization of deferred compensation                    --         --            209             --             --            209

Unrealized loss on financed income receivable            --         --             --         (1,488)            --         (1,488)

Net income                                               --         --             --             --          7,875          7,875

                                                 ----------     ------      ---------     ----------     ----------     ----------

BALANCE, MARCH 31, 1999                          39,204,110     $  392      $ 324,995     $   17,062     $  (66,823)    $  275,626
                                                 ----------     ------      ---------     ----------     ----------     ----------
                                                 ----------     ------      ---------     ----------     ----------     ----------
</TABLE>



<PAGE>

                             ARCADIA FINANCIAL LTD.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                      FOR THE QUARTER ENDED MARCH 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION. The interim financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures present fairly the financial position of the
Company and its subsidiaries for the periods presented. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes and schedules included in the Company's 1998 Annual
Report on Form 10-K filed March 24, 1999.

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

     Certain reclassifications have been made to the March 31, 1998 balances to
conform to current period presentation.

     USE OF ESTIMATES

     In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported value of finance
income receivable and the gain on sale of automobile receivables. Such
assumptions include, but are not limited to, estimates of loan prepayments,
defaults, recovery rates and present value discount. The Company uses a
combination of its own historical experience, industry statistics and
expectation of future performance to determine such estimates. The Company's
estimation process is evaluated on a regular basis and modified when deemed
necessary. Modifications to the estimation process may result in changes in
estimates utilized to determine the carrying value of financed income
receivables. Actual results may differ from the Company's estimates due to
numerous factors both within and beyond the control of Company management.
Changes in these factors could require the Company to revise its assumptions
concerning the amount of voluntary prepayments, the frequency and/or severity of
defaults and the recovery rates associated with the disposition of repossessed
vehicles. The range of assumptions, as well as actual performance, are
reflective of the risk characteristics of the loans within specific
securitization pools.


<PAGE>

                             ARCADIA FINANCIAL LTD.

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      FOR THE QUARTER ENDED MARCH 31, 1999

2. FINANCE INCOME RECEIVABLE

The following table sets forth the components of finance income receivable:

<TABLE>
<CAPTION>
                                                                                       AT                 AT
                                                                                    MARCH 31,        DECEMBER 31,
                                                                                      1999               1998
                                                                                 ----------------   ----------------
(DOLLARS IN THOUSANDS)
<S>                                                                                   <C>                <C>       
Estimated cash flows on loans sold, net of estimated prepayments (1)                  $1,210,064         $1,195,466
Deferred servicing income                                                               (102,034)          (101,996)
Reserve for loan losses                                                                 (408,038)          (415,401)
                                                                                 ----------------   ----------------

Undiscounted cash flows on loans sold, net of estimated prepayments                      699,992            678,069
Discount to present value                                                                (91,996)           (90,123)
                                                                                 ----------------   ----------------
                                                                                       $ 607,996          $ 587,946
                                                                                 ----------------   ----------------
                                                                                 ----------------   ----------------
Reserve for loan losses as a percentage of servicing portfolio                             7.92%              8.15%
</TABLE>

--------------

(1)  Includes restricted cash deposits in securitization spread accounts of
     $237.8 million and $227.7 million at March 31, 1999 and December 31, 1998,
     respectively.

The following represents the roll-forward of the finance income receivable
balance:
<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)
<S>                                                                                                     <C>      
BALANCE, DECEMBER 31, 1998                                                                              $ 587,946
  Present value of estimated future cash flows from current period securitizations                         49,765
  Interest earned on spread accounts                                                                        3,790
  Recognition of present value effect of discounted cash flows                                             13,242
  Unrealized loss on retained assets                                                                       (1,488)
  Less:
    Excess cash flows released to the Company (1)                                                         (45,259)

                                                                                                        ---------
BALANCE AT MARCH 31, 1999                                                                               $ 607,996
                                                                                                        ---------
                                                                                                        ---------
</TABLE>
----------------

(1)  Pursuant to an arrangement between the Company and its provider of
     asset-backed securities insurance, if any insured securitization trust
     exceeds a specified portfolio performance test as defined within the trust
     agreement, the Company may, in lieu of retaining excess cash from that
     securitization trust in the related spread accounts, pledge an equivalent
     amount of cash, which has the effect of preventing the violation of the
     portfolio performance test. Under such arrangement, the Company had
     approximately $9.4 million pledged and deposited in restricted accounts at
     March 31, 1999. Such pledged amounts are included in cash and cash
     equivalents. Restrictions on the pledged amounts may be lifted if the
     portfolio performance for the related securitization trusts tests are met
     and maintained as defined in the arrangement, the violations are waived, or
     the loans within the securitization trust are repurchased by the Company at
     the end of the securitization term.


<PAGE>


                             ARCADIA FINANCIAL LTD.

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      FOR THE QUARTER ENDED MARCH 31, 1999

3. OTHER ASSETS

<TABLE>
<CAPTION>
                                                                      AT                              AT
                                                                MARCH 31, 1999                DECEMBER 31, 1998
                                                               ------------------          ---------------------
(DOLLARS IN THOUSANDS)
<S>                                                                      <C>                            <C>    
Interest advances to securitization trusts                               $ 4,743                        $ 5,967
Deferred debt issuance costs                                               9,757                         10,110
Investment in subordinated certificates                                    1,637                          1,873
Servicing fee receivable                                                   4,932                          4,841
Prepaid expenses                                                           1,398                          1,717
Other assets                                                               8,912                          6,911
                                                                        --------                       --------
                                                                        $ 31,379                       $ 31,419
                                                                        --------                       --------
                                                                        --------                       --------
</TABLE>


4. SUBORDINATED NOTES

<TABLE>
<CAPTION>
                                                                      AT                              AT
                                                                MARCH 31, 1999                DECEMBER 31, 1998
                                                               ------------------          ---------------------
(DOLLARS IN THOUSANDS)
<S>                               <C>                                   <C>                            <C>     
Senior subordinated notes, Series 1996-A                                $ 30,000                       $ 30,000
Junior subordinated notes                                                 29,764                         21,898
                                                                        --------                       --------
                                                                        $ 59,764                       $ 51,898
                                                                        --------                       --------
                                                                        --------                       --------
</TABLE>

5. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share for each of the three month periods ended March 31:

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                     1999                            1998
                                                               ------------------              -----------------
Numerator:

<S>                                                                   <C>                            <C>       
  Net income                                                           $   7,875                      $   4,956
                                                                      ----------                     ----------
                                                                      ----------                     ----------

Denominator:

  Denominator for basic earnings per share - weighted
     average shares                                                   39,204,110                     38,988,885
  Dilutive effect of options and warrants (1)                             75,739                        372,083
                                                                      ----------                     ----------

  Denominator for diluted earnings per share - adjusted
     weighted average shares                                          39,279,849                     39,360,968
                                                                      ----------                     ----------
                                                                      ----------                     ----------
Basic earnings per share                                                $   0.20                       $   0.13
                                                                      ----------                     ----------
                                                                      ----------                     ----------
Diluted earnings per share                                              $   0.20                       $   0.13
                                                                      ----------                     ----------
                                                                      ----------                     ----------
</TABLE>

-------------

(1)  At March 31, 1999 and 1998, there were options and warrants outstanding to
     purchase an aggregate 7.0 million and 4.9 million common shares,
     respectively. All of these potential common shares have been excluded from
     the computation of diluted earnings per share because their inclusion would
     have been anti-dilutive.


<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

OVERVIEW

     The Company derives substantially all of its earnings from the purchase,
securitization and servicing of consumer automobile loans originated in 45
states primarily by car dealers affiliated with major foreign and domestic
manufacturers. Loans are purchased through 18 regional buying centers (or
"hubs") located in 15 states, supplemented by a network of dealer development
representatives ("DDRs") which develop and maintain relationships with car
dealers operating within each "hub's" immediate market area or in surrounding
market areas referred to as "spokes." Credit approval and loan processing are
generally performed at the "hub" or at the Company's headquarters in
Minneapolis, Minnesota. The Company acts as the servicer of all loans originated
and securitized by it in return for a monthly servicing fee. To perform its
servicing responsibilities the Company operates a national customer service
center in Minneapolis, Minnesota and four regional collection centers located in
Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; and Minneapolis,
Minnesota.

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

     RESULTS OF OPERATIONS

     NET INTEREST MARGIN. The components of net interest margin for each of the
three months ended March 31 were:

<TABLE>
<CAPTION>
                                                                                      1999             1998
                                                                                  --------------   --------------
(DOLLARS IN THOUSANDS)
<S>                                                                                     <C>              <C>    
Interest income on loans, net                                                           $ 7,105          $ 6,279
Interest income on short-term investments and other cash accounts                         1,842            3,060
Recognition of present value discount                                                    13,242           11,577
Provision for credit losses on loans held for sale                                         (900)            (969)

                                                                                       --------          -------
    Net interest margin                                                                $ 21,289          $19,947
                                                                                       --------          -------
                                                                                       --------          -------
</TABLE>

     Net interest margin for the three months ended March 31, 1999 increased 7%,
compared with the same period a year ago. The change in net interest margin is
primarily due to an increase in present value discount recognized, resulting
from higher discount rate assumptions used during the first quarter of 1999 in
connection with the gain on sale of loans and the establishment of finance
income receivable.

     Net interest margin also benefited from an increase in the average monthly
balance of loans held for sale, on which the Company earns interest income until
such loans are securitized, to $233.8 million from $183.1 million during the
quarters ended March 31, 1999 and 1998, respectively, and a rise in the weighted
average net interest rate spread earned on such loans held for sale to 12.18%
during the first quarter of 1999 compared with 11.48% during the same period in
1998.

     The Company's loan purchasing and securitization volume for each of the
three months ended March 31 are set forth in the table below.

<TABLE>
<CAPTION>
                                                                                     1999                1998
                                                                                ----------------   -----------------
(DOLLARS IN THOUSANDS)
<S>                                                                                 <C>                 <C>      
Total automobile loans purchased                                                    $ 582,468           $ 583,973

Automobile loans securitized                                                        $ 550,000           $ 588,194
</TABLE>


<PAGE>


     GAIN ON SALE OF LOANS. Revenue provided from gain on sale of loans was
$22.0 million and $27.0 million during the three months ended March 31, 1999 and
1998, respectively. The decrease in gain on sale of loans reflects a 7% decrease
in loan securitization volume and the effect of lower estimated recovery rates
on future loan charge-offs compared with recovery rate estimates utilized in the
first quarter of 1998. The Company made a change in accounting estimate and
recognized a special charge to earnings during the second quarter of 1998, after
determining it appropriate to lower its estimate of future recovery rates.

     The following table summarizes the significant factors and assumptions
utilized in determining gain on sale of loans for each of the three month
periods ended March 31:

<TABLE>
<CAPTION>
                                                                                          1999           1998
                                                                                      --------------  ------------

<S>                                                                                          <C>           <C>   
Weighted average APR of loans securitized                                                    17.34%        17.04%
Weighted average securitization rate                                                          5.95          5.98
                                                                                             -----         ----- 
   Gross interest rate spread (1)                                                            11.39%        11.06%
                                                                                             -----         ----- 
                                                                                             -----         ----- 

Weighted average cumulative net losses (2)                                                    8.33%         6.14%
Weighted average present value discount rate on future excess cash flows                     10.00%         8.93%
</TABLE>

-----------
(1)  Before gains/losses on hedging transactions.

(2)  Assumptions for 1998 are based on original computation prior to adjustments
     to record permanent impairment of finance income receivable during June
     1998.

     The rise in gross interest rate spread during the three months ended March
31, 1999 is primarily due to the Company's continued refinements to its
risk-based pricing strategy resulting in slightly higher APR's.

     Any unamortized balance of participations paid to dealers is expensed at
the time the related loans are securitized and recorded as a reduction to gain
on sale. Participations paid as a percentage of the principal balance of loans
purchased declined slightly to 2.83% during the three months ended March 31,
1999, from 2.86% in the same period a year ago.

     Gain on sale of loans has been adjusted for a $70,100 net realized gain and
a $5.8 million net realized loss on hedging transactions during the first
quarters of 1999 and 1998, respectively. The first quarter of 1998 realized
hedging losses primarily resulted from the downward movement of treasury rates.

     SERVICING FEE INCOME. The components of servicing fee income for each of
the three month periods ended March 31 were:

<TABLE>
<CAPTION>
                                                                                        1999                1998
                                                                                    -------------       ------------
     (DOLLARS IN THOUSANDS)
<S>                                                                                   <C>                 <C>    
     Contractual servicing fee income                                                 $14,354             $13,928
     Other servicing income                                                             7,461               5,738
                                                                                      -------             -------
        Total servicing fee income                                                    $21,815             $19,666
                                                                                      -------             -------
                                                                                      -------             -------
</TABLE>


     The Company earns contractual servicing fee income for servicing loans sold
to investors through securitizations. Contractual servicing income is earned at
rates ranging from 1% to 1.25% per annum on the outstanding principal balance of
all loans securitized. The Company's servicing fee approximates adequate
compensation as defined by SFAS 125 and therefore, the Company has not recorded
a servicing asset or liability at March 31, 1999.

     Other servicing income consists primarily of collection fees, such as late
payment fees and insufficient fund charges, and interest on collection accounts
earned by the Company as servicer of the loans. The rise in other servicing
income for the quarter ended March 31, 1999 compared to the quarter ended March
31, 1998 is primarily due to an increase in fees associated with certain
customer payment services utilized for collecting delinquent accounts. Prior to
the second quarter of 1998 the majority of such services were provided by
outside vendors in return for a portion of the fee.


<PAGE>


     The following table reflects the growth in the Company's servicing
portfolio from March 31, 1998 to March 31, 1999:

<TABLE>
<CAPTION>
                                                                               AT MARCH 31,
                                                                         1999                1998
                                                                    ----------------    ---------------
    (DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
    <S>                                                                   <C>                <C>      
    Principal balance of automobile loans held for sale                   $  44,125          $  21,129
    Principal balance of loans serviced under securitizations             5,104,822          5,005,350
                                                                        -----------        -----------

    Servicing portfolio                                                 $ 5,148,947        $ 5,026,479
                                                                        -----------        -----------
                                                                        -----------        -----------
    Average unpaid principal balance (actual dollars)                   $    11,177        $    11,775
    Number of loans serviced                                                460,692            426,884
</TABLE>


     The Company's servicing portfolio (measured by principal balance) increased
2% from March 31, 1998 to March 31, 1999, reflecting loan purchases and
subsequent securitizations, partially offset by defaults, prepayments and
scheduled repayments. The decline in average outstanding balance of loans during
the first quarter of 1999 reflects an increase in the proportion of used to new
cars financed by the Company and a reduction in average loan-to-value ratio on
loan purchases resulting from the Company's more selective buying practices.

     OPERATING EXPENSES. Salaries and benefits increased to $18.5 million in the
first quarter of 1999, up 4% from $17.7 million during the same period in 1998.
The increase in salaries and benefits is primarily due to an enhanced incentive
program for collectors, partially offset by fewer FTE's and lower overtime
compensation resulting from centralizing the Company's collection operations
during 1998.

     Other operating costs, including administrative, occupancy, depreciation
and amortization, origination, servicing and collection expenses, decreased 11%
for the three months ended March 31, 1999, compared with the same period in
1998. The decrease is primarily attributable to lower repossession and
remarketing expenses due to the elimination of the Company's retail remarketing
program.

     IMPACT OF YEAR 2000. The Company recognizes that the arrival of the Year
2000 poses a unique worldwide challenge to the ability of all computer based
applications to recognize the date change from December 31, 1999 to January 1,
2000, potentially causing miscalculations, system failures and other operational
problems.

     One of the Company's most critical operating systems is its loan accounting
system. In July 1997, an internal implementation team along with outside
consultants was assigned to evaluate, select, and implement a new installment
loan accounting system and various sub-systems (the "ILA system") in connection
with an initiative to replace and enhance the Company's key operating systems.
One of the requirements for consideration was that the new ILA system be Year
2000 compliant. In late 1997, a contract was signed with a nationally recognized
vendor to provide the Company with such a system. The contract warrants, among
other things, that the core software system being purchased is fully Year 2000
compliant and that the software will be installed and in a testing phase with
the Company's current system in the second quarter of 1999. To date, the Company
believes that the terms of the contract have been met and that testing will be
complete and the new ILA system placed into operation early in the third quarter
of 1999.

     In addition, in early 1998 the Company formed a dedicated project team to
conduct an extensive analysis of the impact that the Year 2000 issue might have
on its automated information systems (exclusive of the ILA system), business
support systems and facility operating systems. The project team has been
responsible for the prioritization of Year 2000 tasks, development of
implementation plans, and the establishment of timetables for completion and
testing of all necessary modifications. As a result, the Company has initiated
the replacement, modification or reprogramming of Year 2000 non-compliant
hardware and software and since 1997 has required that all new hardware and
software be certified as Year 2000 compliant prior to purchase. To assist in
this process, the Company engaged an independent 


<PAGE>


company to aid in the remediation of non-compliant programs. The modification,
reprogramming, testing and implementation of the Company's non-compliant
programs were completed in the first quarter of 1999. All Year 2000 testing was
executed in an isolated systems environment dedicated for Year 2000 issues. As a
contingency to the possibility of an unplanned delay in the implementation of
the new ILA system discussed above, the Company's current loan accounting system
was included in the programs provided to the independent company for
remediation. This provides a Year 2000 compliant installment loan accounting
system even if the implementation of the new ILA system should be delayed beyond
the end of 1999.

     The Company estimates that the cost of its Year 2000 project will aggregate
approximately $1.5 million, of which approximately $0.8 million has been
expended through March 31, 1999. These costs do not include amounts related to
the implementation of the ILA system or other hardware and software purchases
which the Company had planned to acquire and which are not directly related to,
or the purchase of which has not been accelerated because of, the Year 2000
issue. Consistent with the Company's capitalization policy, the cost of such
non-Year 2000 hardware and software purchases will be capitalized and amortized
over their expected useful lives.

     Ultimately, the potential impact of the Year 2000 issue will depend not
only on the success of the corrective measures that the Company undertakes, but
also on the way in which the Year 2000 issue is addressed by its business
partners, service providers, utility providers, governmental agencies and other
entities with which the Company does business. The Company has developed and
implemented a plan to contact parties which provide services critical to the
successful operation of its business to heighten their awareness of the Year
2000 issue, to learn how they are addressing it and to evaluate any likely
impact on the Company. For example, the Company completed a Year 2000 survey of
its credit bureaus, investment bankers and warehouse providers during 1999. The
Year 2000 efforts of third parties are not within the Company's control,
however, and their failure to remediate Year 2000 issues successfully could
result in business disruption, increased operating costs and increased credit
risk for the Company. At the current time, it is not possible to determine
whether any such events are likely to occur, or to quantify any potential
negative impact they may have on the Company's future results of operations and
financial condition.

     The Company believes that it has an effective plan in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary processes of its Year 2000 plan. The Company plans to
continuously monitor the status of completion of its Year 2000 plan and, based
on such information, will develop contingency plans as necessary. In the event
that the Company does not complete any additional phases of its plan, the
Company may be unable to perform its key operating activities, such as the
purchase of loans and the invoicing, collecting and application of obligor
repayments. The Company could be subject to litigation for computer systems
failure, such as improper application of repayments and resulting incorrect
credit reporting to credit bureaus. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot
reasonably be estimated at this time.

     The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and cost of the Company's Year
2000 project, contains forward-looking statements, which are based on
management's best estimates derived using various assumptions. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material difference include, but are not limited to,
the continued availability of key Year 2000 personnel, the Company's ability to
locate and correct all relevant computer codes, the performance of contractors
and companies retained to provide new software and to remediate existing
hardware and software, and the Company's ability to respond to unforeseen Year
2000 complications. Such material differences could result in, among other
things, business disruption, operational problems, financial loss, legal
liability and similar risks.

     INCOME TAXES. The Company did not record an income tax provision during the
three months ended March 31, 1999, due to the utilization of net operating loss
carryforwards.


<PAGE>


     FINANCIAL CONDITION

     DUE FROM SECURITIZATION TRUST. At March 31, 1999 and December 31, 1998, the
Company had delivered $148.8 million and $62.1 million, respectively, of loans
into securitization trusts for which the Company received cash from the trusts
concurrent with the legal closing of the transactions in April 1999 and January
1999, respectively. The increase in due from securitization trust at March 31,
1999, is primarily due to the increase in size of the securitization transaction
and timing of deliveries to the trust.

     AUTO LOANS HELD FOR SALE. The Company's portfolio of auto loans held for
sale increased to $43.7 million at March 31, 1999, compared with $17.9 million
at December 31, 1998, primarily due to an increase in loan purchasing volume
during the first quarter 1999 compared with the fourth quarter of 1998.

     FINANCE INCOME RECEIVABLE. Finance income receivable increased to $608.0
million at March 31, 1999 from $587.9 million at December 31, 1998. This
increase is primarily due to amounts capitalized upon completion of
securitization transactions during the first quarter of 1999 related to the
present value of estimate cash flows partially off-set by excess cash flows
released to the Company from securitization trusts.

     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. Accounts payable and accrued
liabilities decreased 31% to $25.3 million at March 31, 1999 as compared with
$36.9 million at December 31, 1998. This decrease primarily reflects the
semi-annual payment in March 1999 of accrued interest associated with the
Company's Senior Notes.


<PAGE>


DELINQUENCY, CREDIT LOSS AND REPOSSESSION EXPERIENCE

     The following tables describe the delinquency and credit loss and
repossession experience of the Company's servicing portfolio for the periods
indicated. A delinquent loan may result in the repossession and foreclosure of
the collateral for the loan. Losses resulting from repossession and disposition
of automobiles are charged against applicable allowances, which management
reviews on a monthly basis. There can be no assurance that future delinquency,
credit loss and repossession experience will be comparable to that set forth
below.

DELINQUENCY EXPERIENCE (1):

<TABLE>
<CAPTION>
                                                           MARCH 31, 1999                      DECEMBER 31, 1998
                                                 ---------------------------------     ----------------------------------
                                                   NUMBER OF          PRINCIPAL          NUMBER OF           PRINCIPAL
                                                     LOANS             BALANCE             LOANS              BALANCE
                                                 --------------     --------------     --------------      --------------
(DOLLARS IN THOUSANDS)
<S>                                                    <C>             <C>                   <C>              <C>       
Servicing portfolio at end of period                   460,692         $5,148,947            450,635          $5,096,222
Delinquencies:
  31-60 days                                             8,021           $ 87,630             12,176           $ 135,633
  61-90 days                                             3,505             39,477              4,161              47,599
  91 days or more                                        5,596             60,381              5,165              60,591
                                                       -------         ----------            -------          ----------
Total loans delinquent 31 or more days                  17,122          $ 187,488             21,502           $ 243,823
                                                       -------         ----------            -------          ----------
                                                       -------         ----------            -------          ----------
Delinquencies as a percentage of
  number of loans and amount
  outstanding at end of period (2)                        3.72%              3.64%              4.77%               4.78%

Amount in repossession                                   5,542           $ 31,501              5,686            $ 32,676
</TABLE>

-----------

(1)  All amounts and percentages are based on the principal amount scheduled to
     be paid on each loan. The information in the table includes previously sold
     loans which the Company continues to service.

(2)  Amounts shown do not include loans which are less than 31 days delinquent.


CREDIT LOSS/REPOSSESSION EXPERIENCE (1):

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                               MARCH 31,
                                                                    ---------------------------------
                                                                        1999               1998
                                                                    --------------     --------------
(DOLLARS IN THOUSANDS)
<S>                                                                    <C>                <C>       
Average servicing portfolio outstanding during the period              $5,112,482         $5,001,781
Average number of loans outstanding during the period                     451,813            419,179
Number of charge-offs                                                       8,116              7,597

Gross charge-offs (2)                                                  $   62,907         $   52,479
Recoveries (3)                                                              8,207              3,576
                                                                       ----------         ----------
Net losses                                                             $   54,700         $   48,903
                                                                       ----------         ----------
                                                                       ----------         ----------

Annualized gross charge-offs as a percentage of average
  servicing portfolio                                                        4.92%              4.20%
Annualized net losses as a percentage of average
   servicing portfolio                                                       4.28%              3.91%
</TABLE>

-----------


(1)  All amounts and percentages are based on the principal amount scheduled to
     be paid on each loan. The information in the table includes previously sold
     loans which the Company continues to service.

(2)  Gross charge-offs represent principal amounts which management estimated to
     be uncollectable after the consideration of anticipated proceeds from the
     disposition of repossessed assets and selling expenses.

(3)  Includes post-disposition amounts received on previously charged off loans.


<PAGE>

     The Company's delinquency rate has declined compared to December 31, 1998,
in part because of a recovery from the normal seasonal pressure on collection
efforts which is generally highest in the fourth quarter of the year. Management
also believes that the decrease in the delinquency rate reflects improvements in
the Company's collections and servicing functions implemented during 1998 and
the first quarter of 1999.

     The increase in gross charge-offs and net losses during the three months
ended March 31, 1999, compared to the same period a year ago primarily reflects
the utilization of only wholesale disposition channels for the sale of
repossessed vehicles. Although recovery rates on the sale of vehicles through
wholesale channels is generally lower than those realized through retail
distribution channels, management believes that its decision in June 1998 to
discontinue its retail remarketing operations has enabled it to better manage
its level of repossessed inventory, due to the increase in the speed at which
repossessed vehicles can be liquidated, and as a result has improved the timing
of excess cash flows released to the Company from securitization trusts.

LIQUIDITY

     The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) the purchase and
financing of automobile loans pending securitization, (ii) payment of dealer
participations, (iii) deposits of cash held from time to time in restricted
accounts to support securitizations and warehouse facilities and other
securitization expenses, (iv) interest advances to securitization trusts, (v)
the cost of repossessed inventory, and (vi) interest expense. The Company also
uses significant amounts of cash for operating expenses. The Company receives
cash principally from interest on loans held pending securitization, excess cash
flow received from securitization trusts and fees earned through servicing of
loans held by such trusts. The Company has operated to date on a negative
operating cash flow basis and expects to continue to do so in the near future.
The Company has historically funded these negative operating cash flows
principally through borrowings from financial institutions, sales of equity
securities and sales of senior and subordinated notes. The Company expects that
it will require additional capital in the future to fund continued negative cash
flows, although there can be no assurance that the Company will have access to
capital markets in the future or that financing will be available to satisfy the
Company's operating and debt service requirements or to fund its future growth.
See "Capital Resources."

     PRINCIPAL USES OF CASH IN OPERATING ACTIVITIES

     PURCHASE AND FINANCING OF AUTOMOBILE LOANS. Automobile loan purchases
represent the Company's most significant cash flow requirement. The Company
purchased $582.5 million of loans during the first three months of 1999 compared
to $584.0 million during the same period in 1998. The Company funds the purchase
price of loans primarily through the use of warehouse facilities. However,
because the warehouse facilities limit the advance rate to less than 100% of the
loan balances being purchased, the Company is required to fund the remainder of
all purchases prior to securitization with other available cash resources.

     DEALER PARTICIPATIONS. Consistent with industry practice, the Company pays
dealer participations for selling loans to the Company. These participations
typically require the Company to advance an up-front amount to dealers. When
loans are securitized, the related dealer participation is expensed and
subsequently recovered over the estimated life of the related loan through the
return to the Company of excess cash flow from the securitization trust.
Participations paid by the Company to dealers during the three months ended
March 31, 1999 were $16.5 million, or approximately 2.83% of the principal
balance of loans purchased, compared with $16.7 million, or approximately 2.86%
of loans purchased, during the same period in 1998.

     SPREAD ACCOUNT AND SECURITIZATION EXPENSES. In connection with
securitizations, the Company is required to fund spread accounts related to each
transaction. The Company primarily funds these spread accounts by foregoing
receipt of excess cash flow until these spread accounts exceed predetermined
levels. In addition, for certain securitizations the Company has been required
to provide initial cash deposits into the spread accounts which generally ranged
from one to two percent of the principal balance of loans securtized. In
exchange for an increase in the insurance premiums paid to the Company's
provider of asset-backed 


<PAGE>


securities insurance, the Company has eliminated or significantly reduced the
amount of cash required for initial deposits in connection with securitizations
completed since 1997. There can be no assurance that similar insurance
arrangements will be negotiated for future securitizations; failure to negotiate
similar terms would increase the Company's need for cash to fund its
securitization activity.

     The Company had $237.8 million of restricted cash in spread accounts at
March 31, 1999, compared with $227.7 million at December 31, 1998. The increase
in restricted cash in spread accounts reflects the continued securitization of
loan purchases and the related accumulation of excess cash flows to levels
defined within each securitization agreement, partially offset by the release of
excess cash flows from securitization trusts spread accounts which have reached
appropriate levels. In addition to the restricted cash noted above, spread
accounts were further supported by $34.5 million and $18.5 million of
reinsurance contracts at March 31, 1999 and December 31, 1998, respectively,
purchased by the Company's asset-backed securities insurance provider in
connection with the initial deposit arrangement discussed above, as well as an
additional $60.0 million in reinsurance contracts related to the early release
of $60.0 million of cash from spread accounts during 1998. The $60.0 million
will be replenished in the relevant spread accounts, and the amount of
reinsurance reduced, by means of a $3.0 million reduction in the level of
monthly cash releases from the spread accounts beginning in May 1999 and
increasing to $5.0 million per month beginning in October 1999.

     The Company also incurs certain expenses in connection with
securitizations, including underwriting fees, credit enhancement fees, trustee
fees and other costs, which approximate 0.5% of the principal amount of the
asset-backed securities sold into the securitizations.

     INTEREST ADVANCES TO SECURITIZATION TRUSTS. As the servicer of loans sold
in securitizations, the Company periodically makes interest advances to the
securitization trusts to provide for temporary delays in the receipt of required
interest payments from borrowers. In accordance with the relevant servicing
agreements, the Company makes advances only in the event it expects to recover
such advances through the ultimate payments from the obligor over the life of
the loan.

     REPOSSESSED INVENTORY. At March 31, 1999, repossessed inventory managed or
owned by the Company and held for resale was $31.5 million, compared with $32.7
million at December 31, 1998. The rate of repossessed inventory turnover impacts
cash available for deposit to spread accounts from securitization trusts and,
consequently, the excess cash potentially available for distribution to the
Company. At March 31, 1999, and December 31, 1998, repossessed inventory was
0.6% of the total servicing portfolio. Any improvement in excess cash flows due
to an increase in the inventory turnover rate may be partially reduced by lower
recoveries realized through the exclusive use of wholesale auctions after
December 31, 1998, and generally lower wholesale used car prices.

     INTEREST EXPENSE. Although the Company records net interest margin as
earned, a significant portion of the interest income component is generally
received in cash from excess cash flow, while the interest expense component
(primarily warehousing interest) is paid prior to securitization. The Company
also incurs interest expense related to both short-term and long-term debt
obligations.

     PRINCIPAL SOURCES OF CASH IN OPERATING ACTIVITIES

     EXCESS CASH FLOW. The Company receives excess cash flow from securitization
trusts, including the realization of gain on sale, the recovery of dealer
participations, and the recovery of accrued interest receivable earned, but not
yet collected, on loans held for sale prior to securitization. During the first
quarter of 1999, the Company received $45.3 million of excess cash flow,
compared with $25.0 million during the first quarter 1998. The Company has
entered into an arrangement with its provider of asset-backed insurance which
provides that, if any insured securitization trust exceeds its specified
portfolio performance test as defined within the trust agreement, the Company
may, in lieu of retaining excess cash from that securitization trust in the
related spread accounts, pledge an equivalent amount of cash, which has the
effect of preventing the violation of the portfolio performance test. At March
31, 1999 an aggregate $9.4 million of cash released from spread accounts was
restricted pursuant to such arrangement. Such pledged amounts are included in
cash and cash equivalents. Restrictions on the pledged amounts may be lifted if
the portfolio performance 


<PAGE>


tests for the related securitization trusts are met and maintained as defined in
the arrangement, the violations are waived, or the loans within the
securitization trusts are repurchased at the end of the securitization term.
There can be no assurance that the restrictions will be lifted or, absent
amendments to the portfolio performance tests, that additional performance tests
will not be exceeded thereby increasing the level of excess cash which must be
pledged. A significant increase in the level of cash pledged under such
arrangement would significantly limit the Company's ability to fund the purchase
and securitization of loans.

     SERVICING FEES. The Company receives servicing fees for servicing
securitized loans included in various securitization trusts. The servicing fee
for loans in securitization trusts ranges from one percent to 1.25 percent of
the outstanding principal balance on loans subsequently securitized. The Company
also receives collection fees, such as late payment fees and insufficient fund
charges, and interest on collection accounts earned by the Company as servicer
of the loans. During the three months ended March 31, 1999 and 1998, the Company
received cash for such services in the amount of $21.8 million and $19.9
million, respectively. Servicing fee income is reflected in the Company's
revenues as earned.

CAPITAL RESOURCES

     The Company finances the acquisition of automobile loans primarily through
(i) warehouse facilities, pursuant to which loans are financed generally on a
temporary basis, and (ii) the securitization of loans, pursuant to which loans
are sold as asset-backed securities. Additional financing is required to fund
the Company's operations.

     WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At March 31, 1999, the
Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $700.0
million, of which $570.5 million was available. Proceeds from securitizations,
generally received within seven to ten days following the cut-off date
established for the securitization transaction, are applied to repay amounts
outstanding under warehouse facilities. One of the Company's warehouse
facilities with a capacity of $400.0 million will expire in July 1999 and the
remaining facilities expire in September and October of 1999. Management
believes that these facilities will be renewed or replaced and will continue to
provide adequate capacity for loan originations. However, failure to renew or
find satisfactory replacements for these facilities, would have a significant
adverse impact on the Company's operations by significantly reducing the
Company's ability to purchase automobile loans.

     SECURITIZATION PROGRAM. An important capital resource for the Company has
been its ability to realize the value of its automobile loans in the secondary
markets through securitizations. The following table summarizes the Company's
securitization transactions during the three months ended March 31, 1999, all of
which were publicly issued and rated "AAA/Aaa".

<TABLE>
<CAPTION>
                                                           REMAINING
                                                          BALANCE AS A                                       CURRENT
                                          REMAINING      PERCENTAGE OF       CURRENT         WEIGHTED         GROSS
                                          BALANCE AS    ORIGINAL BALANCE    WEIGHTED         AVERAGE         INTEREST
DATE                      ORIGINAL       OF MARCH 31,                        AVERAGE      SECURITIZATION       RATE
                          BALANCE            1999                              APR             RATE           SPREAD
---------------------- --------------- --------------- ------------------ -------------- ----------------- -------------
(DOLLARS IN
   THOUSANDS)

<S>                      <C>             <C>                 <C>             <C>              <C>             <C>   
March 1999 (1)           $ 550,000       $    394,943        71.81%          17.34%           5.95%           11.39%

</TABLE>

(1)  As of March 31, 1999, the Company had delivered $401.2 million of
     automobile loans and $148.8 million of cash remained in the pre-funded
     portion of the trust.


<PAGE>


     HEDGING STRATEGY

     The Company enters into hedging transactions to manage its gross interest
rate spread on loans held for sale. The Company sells forward US Treasuries that
most closely parallel the average life of its portfolio of loans held for sale.
Hedging gains and losses are recognized as a component of the gain on sale of
loans on the date such loans are sold. To the extent hedging gains or losses are
significant, the resulting up-front cash payments or receipts may impact the
Company's liquidity. These up-front cash receipts or payments are off-set in
future periods through the realization of a lower or higher spread,
respectively, established at the time of pricing the hedged transaction. During
the first quarter of 1999, the Company's hedging activities generated net cash
flows to the Company of $70,107 compared to a net use of cash during the same
period a year ago of $5.8 million. There were no unrealized gains or losses
outstanding at March 31, 1999.

     OTHER CAPITAL RESOURCES

     Historically, the Company has utilized various debt and equity financings
to offset negative operating cash flows and support its operations.

     The Company has a program to sell up to $100.0 million of unsecured
subordinated notes (the "Junior Subordinated Notes") to be offered to the public
from time to time (the "Note Program"). Issuance of Junior Subordinated Notes
under the Note Program is subject to restrictions under the Company's Senior
Note indenture. The Note Program includes Junior Subordinated Notes extendible
by the investor having maturities of 90 and 180 days and one year after the date
of issue and fixed-term Junior Subordinated Notes having maturities of one, two,
three, four, five and 10 years after the date of issue. Interest rates on any
unsold Junior Subordinated Notes are subject to change by the Company from time
to time based on market conditions. Interest rates on extendible Junior
Subordinated Notes may be adjusted at any roll-over date. During the first three
months of 1999 proceeds from the issuance of Junior Subordinated Notes, net of
redemptions, were $7.9 million.


<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Because the Company's funding strategy is dependent upon the issuance of
interest-bearing securities and the incurrence of debt, fluctuations in interest
rates impact the Company's profitability. Therefore, the Company employs various
hedging strategies to minimize the risk of interest rate fluctuations. See
"Management's Discussion and Analysis - Capital Resources - Hedging Strategy"
for additional information regarding such market risks.


<PAGE>


                            PART II-OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Under the applicable Securities and Exchange Commission rules, there is
no further new information with respect to legal proceedings that the Company is
required to report in connection with this Quarterly Report on Form 10-Q.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURING HOLDERS

         None

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

        The following exhibits are filed in response to Item 601 of Regulation
S-K.

<TABLE>
<CAPTION>

EXHIBIT
 NO.      DESCRIPTION
<S>       <C>
  3.1     Restated Articles of Incorporation of the Company (incorporated by
          reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1998).

  3.2     Restated Bylaws of the Company, as amended (incorporated by reference
          to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 1998).

  4.1     Rights Agreement dated as of November 1, 1996, between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 1 to the Company's Registration
          Statement on Form 8-A filed November 7, 1996).

  4.2     Amendment No. 1 to Rights Agreement, dated January 16, 1998, to Rights
          Agreement, dated as of November 1, 1996 between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 4.1 to the Company's Current
          Report on Form 8-K dated January 8, 1998 and filed January 20, 1998).

  4.3     Amendment No. 2 to Rights Agreement, dated October 5, 1998, to Rights
          Agreement, dated as of November 1, 1996 between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 4.1 to the Company's Current
          Report on Form 8-K dated September 30, 1998 and filed October 8,
          1998).

  4.4     First Amendment and Restatement, dated as of April 28, 1995 of
          Indenture, dated July 1, 1994, between the Company and Norwest Bank
          Minnesota, National Association, as Trustee, relating to the Company's
          Unsecured Extendible Notes and Fixed Term Notes, including forms of
          Notes (incorporated by reference to Exhibit No. 4.8.1 to
          Post-Effective Amendment No. 2 on Form S-3 to the Company's
          Registration Statement on Form S-1, File No. 33-81512).

  4.5     Instrument of Resignation, Appointment and Acceptance, dated as of
          August 13, 1998, among the Company, Norwest Bank Minnesota, National
          Association, as Resigning Trustee, and Marine Midland 
</TABLE>


<PAGE>

<TABLE>
<S>       <C>
          Bank, as Successor Trustee, relating to the Company's Unsecured
          Extendible Notes and Fixed Term Notes (incorporated by reference to
          Exhibit 4.2 to the Company's Registration Statement on Form S-3, File
          No. 333-60531).

  4.6     First Supplemental Indenture dated as of August 13, 1998, to Indenture
          dated as of July 1, 1994 as amended and restated by that First
          Amendment and Restatement dated as of April 28, 1995 and as further
          amended by that Instrument of Resignation, Appointment and Acceptance
          dated as of August 13,1998, between the Company and Marine Midland
          Bank, as Trustee, relating to the Company's Unsecured Extendible Notes
          and Fixed Term Notes (incorporated by reference to Exhibit 4.3 to the
          Company's Registration Statement on Form S-3, File No. 333-60531).

  4.7     Indenture dated as of March 15, 1996, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
          reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1996).

  4.8     First Supplemental Indenture, dated as of March 15, 1996, to
          Indenture, dated as of March 15, 1996, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
          reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1996).

  4.9     Indenture dated as of March 12, 1997, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's 11 1/2% Senior Notes due 2007 (incorporated by reference to
          Exhibit 4.1 to the Company's Current Report on Form 8-K dated March
          12, 1997 and filed March 18, 1997).

 4.10     First Supplemental Indenture, dated as of March 12, 1997 between the
          Company and Norwest Bank Minnesota, National Association, as Trustee,
          relating to $300,000,000 of the Company's 11 1/2% Senior Notes due
          2007 issued March 12, 1997 (incorporated by reference to Exhibit 4.2
          to the Company's Current Report on Form 8-K dated March 12, 1997 and
          filed March 18, 1997).

 4.11     Warrant Agreement, dated as of March 12, 1997 by and between the
          Company and Norwest Bank Minnesota, National Association, as Warrant
          Agent (incorporated by reference to Exhibit 4.3 to the Company's
          Current Report on Form 8-K dated March 12, 1997 and filed March 18,
          1997).

 4.12     Form of Unit (incorporated by reference to Exhibit 4.4 to the
          Company's Current Report on Form 8-K dated March 12, 1997 and filed
          March 18, 1997).

 4.13     Form of 111/2% Senior Notes due March 15, 2007 (incorporated by
          reference to Exhibit 4.5 to the Company's Current Report on Form 8-K
          dated March 12, 1997 and filed March 18, 1997).

 4.14     Form of Initial Warrant Certificate (incorporated by reference to
          Exhibit 4.6 to the Company's Current Report on Form 8-K dated March
          12, 1997 and filed March 18, 1997).

 4.15     Second Supplemental Indenture, dated as of October 8, 1997, to
          Indenture, dated as of March 12, 1997, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, including form of
          Notes , relating to $75,000,000 of the Company's 11 1/2% Senior Notes
          due 2007 issued October 8, 1997 (incorporated by reference to Exhibit
          4.1 to the Company's Current Report on Form 8-K dated October 8, 1997,
          filed October 15, 1997).

10.1      Series 1999-A Supplement, dated as of March 17, 1999, to Spread
          Account Agreement dated as of March 25, 1993, as amended and restated
          as of November 19,1998, among the Company, Arcadia Receivables Finance
          Corp., Financial Security Assurance Inc. and Norwest Bank Minnesota,
          National Association (filed herewith).

10.2      Insurance and Indemnity Agreement, dated as of March 17, 1999, among
          Financial Security Assurance, Inc., Arcadia Automobile Receivables
          Trust, 1999-A, Arcadia Receivables Finance Corp. and the Company
          (filed herewith).

10.3      Consulting Agreement, dated as of January 20, 1999, by and between the
          Company and Warren Kantor (filed herewith).

10.4      Employment Agreement dated as of January 20, 1999, by and between the
          Company and Robert A. Marshall (filed herewith).

10.5      Non-statutory Stock Option Agreement, dated January 20, 1999, by and
          between the Company and Warren Kantor (filed herewith).

10.6      Arcadia Financial Ltd. 1999 Omnibus Stock Plan (filed herewith).

10.7      1992 Director Stock Option Plan, (as amended January 27, 1999) (filed
          herewith).

27.1      Financial Data Schedule (filed herewith).
</TABLE>


<PAGE>


     (b)  REPORTS ON FORM 8-K

     On March 3, 1999, the Company filed a Current Report on Form 8-K dated
March 1, 1999, announcing that the Company had dismissed Ernst & Young LLP as
the Company's independent auditors.

     On March 8, 1999 the Company filed a Current Report on Form 8-K dated March
5, 1999, reporting that the Company's independent auditors had released their
report dated January 25, 1999 on the Company's consolidated balance sheets as of
December 31, 1998 and 1997 (as restated) and the related consolidated statements
of operations and comprehensive income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 (as restated with
respect to 1997 and 1996).


<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                             ARCADIA FINANCIAL LTD.
<TABLE>
<CAPTION>

SIGNATURE                                            TITLE                                                   DATE
<S>                                     <C>                                                              <C>
     /s/ Richard A. Greenawalt          Director and Chief Executive Officer                             May 14, 1999
---------------------------------
       Richard A. Greenawalt

         /s/ John A. Witham             Executive Vice President and Chief Financial Officer             May 14, 1999
---------------------------------       (Principal Financial Officer)
           John A. Witham               

       /s/ Brian S. Anderson            Senior Vice President, Corporate Controller and                  May 14, 1999
---------------------------------       Assistant Secretary (Principal Accounting Officer)
         Brian S. Anderson              
</TABLE>


<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT NO.      DESCRIPTION
<S>       <C>
  3.1     Restated Articles of Incorporation of the Company (incorporated by
          reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1998).
 
  3.2     Restated Bylaws of the Company, as amended (incorporated by reference
          to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 1998).

  4.1     Rights Agreement dated as of November 1, 1996, between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 1 to the Company's Registration
          Statement on Form 8-A filed November 7, 1996).

  4.2     Amendment No. 1 to Rights Agreement, dated January 16, 1998, to Rights
          Agreement, dated as of November 1, 1996 between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 4.1 to the Company's Current
          Report on Form 8-K dated January 8, 1998 and filed January 20, 1998).

  4.3     Amendment No. 2 to Rights Agreement, dated October 5, 1998, to Rights
          Agreement, dated as of November 1, 1996 between the Company and
          Norwest Bank Minnesota, National Association, as Rights Agent
          (incorporated by reference to Exhibit 4.1 to the Company's Current
          Report on Form 8-K dated September 30, 1998 and filed October 8,
          1998).

  4.4     First Amendment and Restatement, dated as of April 28, 1995 of
          Indenture, dated July 1, 1994, between the Company and Norwest Bank
          Minnesota, National Association, as Trustee, relating to the Company's
          Unsecured Extendible Notes and Fixed Term Notes, including forms of
          Notes (incorporated by reference to Exhibit No. 4.8.1 to
          Post-Effective Amendment No. 2 on Form S-3 to the Company's
          Registration Statement on Form S-1, File No. 33-81512).

  4.5     Instrument of Resignation, Appointment and Acceptance, dated as of
          August 13, 1998, among the Company, Norwest Bank Minnesota, National
          Association, as Resigning Trustee, and Marine Midland Bank, as
          Successor Trustee, relating to the Company's Unsecured Extendible
          Notes and Fixed Term Notes (incorporated by reference to Exhibit 4.2
          to the Company's Registration Statement on Form S-3, File No.
          333-60531).

  4.6     First Supplemental Indenture dated as of August 13, 1998, to Indenture
          dated as of July 1, 1994 as amended and restated by that First
          Amendment and Restatement dated as of April 28, 1995 and as further
          amended by that Instrument of Resignation, Appointment and Acceptance
          dated as of August 13,1998, between the Company and Marine Midland
          Bank, as Trustee, relating to the Company's Unsecured Extendible Notes
          and Fixed Term Notes (incorporated by reference to Exhibit 4.3 to the
          Company's Registration Statement on Form S-3, File No. 333-60531).

  4.7     Indenture dated as of March 15, 1996, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
          reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1996).

  4.8     First Supplemental Indenture, dated as of March 15, 1996, to
          Indenture, dated as of March 15, 1996, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by
          reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1996).

  4.9     Indenture dated as of March 12, 1997, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, relating to the
          Company's 11 1/2% Senior Notes due 2007 (incorporated by reference to
          Exhibit 4.1 to the Company's Current Report on Form 8-K dated March
          12, 1997 and filed March 18, 1997).

 4.10     First Supplemental Indenture, dated as of March 12, 1997 between the
          Company and Norwest Bank Minnesota, National Association, as Trustee,
          relating to $300,000,000 of the Company's 11 1/2% Senior Notes due
          2007 issued March 12, 1997 (incorporated by reference to Exhibit 4.2
          to the Company's Current Report on Form 8-K dated March 12, 1997 and
          filed March 18, 1997).

 4.11     Warrant Agreement, dated as of March 12, 1997 by and between the
          Company and Norwest Bank Minnesota, National Association, as Warrant
          Agent (incorporated by reference to Exhibit 4.3 to the Company's
          Current Report on Form 8-K dated March 12, 1997 and filed March 18,
          1997).
</TABLE>


<PAGE>

<TABLE>
<S>       <C>
 4.12     Form of Unit (incorporated by reference to Exhibit 4.4 to the
          Company's Current Report on Form 8-K dated March 12, 1997 and filed
          March 18, 1997).

 4.13     Form of 111/2% Senior Notes due March 15, 2007 (incorporated by
          reference to Exhibit 4.5 to the Company's Current Report on Form 8-K
          dated March 12, 1997 and filed March 18, 1997).

 4.14     Form of Initial Warrant Certificate (incorporated by reference to
          Exhibit 4.6 to the Company's Current Report on Form 8-K dated March
          12, 1997 and filed March 18, 1997).

 4.15     Second Supplemental Indenture, dated as of October 8, 1997, to
          Indenture, dated as of March 12, 1997, between the Company and Norwest
          Bank Minnesota, National Association, as Trustee, including form of
          Notes , relating to $75,000,000 of the Company's 11 1/2% Senior Notes
          due 2007 issued October 8, 1997 (incorporated by reference to Exhibit
          4.1 to the Company's Current Report on Form 8-K dated October 8, 1997,
          filed October 15, 1997).

10.1      Series 1999-A Supplement, dated as of March 17, 1999, to Spread
          Account Agreement dated as of March 25, 1993, as amended and restated
          as of November 19,1998, among the Company, Arcadia Receivables Finance
          Corp., Financial Security Assurance Inc. and Norwest Bank Minnesota,
          National Association (filed herewith).

10.2      Insurance and Indemnity Agreement, dated as of March 17, 1999, among
          Financial Security Assurance, Inc., Arcadia Automobile Receivables
          Trust, 1999-A, Arcadia Receivables Finance Corp. and the Company
          (filed herewith).

10.3      Consulting Agreement, dated as of January 20, 1999, by and between the
          Company and Warren Kantor (filed herewith).

10.4      Employment Agreement dated as of January 20, 1999, by and between the
          Company and Robert A. Marshall (filed herewith).

10.5      Non-statutory Stock Option Agreement, dated January 20, 1999, by and
          between the Company and Warren Kantor (filed herewith).

10.6      Arcadia Financial Ltd. 1999 Omnibus Stock Plan (filed herewith).

10.7      1992 Director Stock Option Plan, (as amended January 27, 1999) (filed
          herewith).

27.1      Financial Data Schedule (filed herewith).
</TABLE>